Tuesday, September 28, 2010

A new www.IRS.gov/taxpros page has also launched along with other pages providing instructions and a link to the registration system. Extensive updates have been made to the FAQs, including a new section containing 6 scenarios to assist preparers in determining who needs a PTIN.

As part of the outreach effort, a letter is being sent to the 1M+ preparers who currently have a PTIN. A copy of this letter and the enclosed brochure are also attached. The letters will be staggered over 8 weeks beginning 10/13 and ending 12/1.

You must renew your Preparer Tax Identification Number (PTIN) for the 2011 filing season

The Internal Revenue Service is beginning a new oversight program to help regulate the tax preparation

industry. We believe this initiative will help ensure that taxpayers receive service from qualified professionals,

while strengthening the integrity of our tax system overall. Part of this oversight program includes assigning a

PTIN to all tax preparers through our new, online system. Although you already have a PTIN, you must renew

it if you’re still practicing as a paid tax preparer. Please renew your PTIN as soon as possible, but no later than

Vice President Joe Biden, the U.S. Department of Health and Human Services and the Centers for Medicare & Medicaid Services (CMS) announced that the nation’s pharmaceutical manufacturers will provide 50 percent discounts on the cost of covered brand-name prescription drugs for beneficiaries in the Medicare Part D coverage gap, or donut hole, starting in 2011.

Technical Guidance

Notice 2010-64 explains the circumstances under which the 4-year replacement period under section 1033(e)(2) is extended for livestock sold on account of drought. The Appendix to this notice contains a list of counties that experienced exceptional, extreme, or severe drought conditions during the 12-month period ending August 31, 2010. Taxpayers may use this list to determine if an extension is available.

Several important provisions of the Affordable Care Act are in effect September 23, including strong consumer protections and more choices in health care. Learn more here: Watch the videoor Read a summary

WASHINGTON—Democrats abandoned plans to vote before Election Day on extending Bush-era tax cuts for the middle class while eliminating them for better-off Americans, spooked by protests from vulnerable incumbents and bleak prospects for passage.

With time running out to plan for 2011, the delay raises uncertainty for small businesses and individual taxpayers over their future liabilities. It also sets up a titanic battle over taxes after the election.

If returning lawmakers don't pass legislation by Dec. 31, the expiration date of the cuts, tax rates would rise not only on income, but also on estates, capital gains and dividends. Important corporate tax credits and relief from the Alternative Minimum Tax also are up for renewal.

Democratic leaders and President Barack Obama made the proposal to extend the middle-class tax breaks a centerpiece of their midterm campaign strategy. They now face the possibility their members are vulnerable to Republican charges that they have failed to prevent taxes from rising for almost everyone.

Congressmen from both parties said the toxic politics of taxes and the crush of issues to be resolved increased the likelihood all the Bush-era breaks, including those for higher earners, would be extended at least for a year or two. But Mr. Obama could still veto such a bill.

For now, taxpayers confront a number of worrisome scenarios, including the possibility Congress might deadlock on the issue in the post-election "lame duck" session, resulting in across-the-board tax increases.

With taxes a hot-button issue on the campaign trail, lawmakers threw in the towel Thursday until after the elections. Sen. Richard Durbin, the No. 2 Senate Democrat, said, "The reality is, we are not going to pass what needs to be passed to change this, either in the Senate or in the House, before the election."

House Majority Leader Steny Hoyer (D., Md.) said the House wouldn't schedule a vote on taxes if the Senate didn't. Later, on Thursday evening, a House Democratic aide said a floor vote remained "possible," adding that no decision had been made.

At this point, neither the House nor the Senate is expected to stay in session past next week.

Senate Majority Leader Harry Reid of Nevada sought to blame Republicans in a statement Thursday evening that conceded there would be no vote before November. "Democrats believe we must permanently extend tax cuts for the middle class before they expire at the end of the year, and we will," said Jim Manley, a spokesman for Mr. Reid. "Unfortunately, to this point, we have received no cooperation from Republicans to do so.…We will come back in November and stay in session as long as it takes to get this done."

Republicans said Democrats hadn't yet written a tax bill on which lawmakers could vote, because of disagreement among Democratic members.

"This delay is irresponsible and reckless. It's no wonder the American people are fed up with the leadership of Congress. Every family in America faces a major tax increase next year because the Senate majority leader has failed to take action to prevent it," said GOP Sen. Chuck Grassley of Iowa.

The delay could upend the financial planning of millions of Americans. "You're going to have families sitting there thinking about the tax consequences in end-of-life situations," said Alan Rothschild, chairman of the American Bar Association's section on estate law. "That's a horrible situation." The estate tax, which lapsed in January, will return next year at rates up to 55% unless Congress acts.

Whatever lawmakers decide to do, "they should do it quickly," Mark Zandi, chief economist of Moody's Analytics, wrote last week. "The uncertainty of not knowing what tax rates will be just a few months from now is adding to the collective nervousness." He called the impact on business decision-making, especially hiring, "discernible."

Democratic leaders, led by House Speaker Nancy Pelosi of California and Mr. Reid, settled on the strategy of voting on the permanent extension as a way of casting Democrats as the party of the middle class, in contrast with Republicans' support for higher earners.

The plan quickly ran into opposition from centrist Democrats in the House and Senate, who worried that passing Mr. Obama's proposal would leave them vulnerable to the charge of raising taxes on high-income taxpayers in a weak economy.

"I actually believe that voting on taxes right before the election is a mistake," Sen. Dianne Feinstein (D., Calif.) said Thursday before Democrats huddled to discuss their final legislative moves. Her home-state colleague, Sen. Barbara Boxer, is facing a tough re-election fight where taxes are big issue.

A White House spokeswoman accused Republicans of holding the middle-class tax cut "hostage" to prevent a tax increase on the wealthy, and said the administration's message was coming through.

"Republicans in Congress have made it clear they would rather stall and obstruct, instead of giving working families the assistance they need," said spokeswoman Jen Psaki.

Quite the contrary, said Sen. Orrin Hatch (R., Utah), who's expected to become the top Republican on the Finance Committee next year. "It's unfortunate that the White House and its Capitol Hill allies have allowed politics to get in the way of making sure the American people's taxes don't go up," he said.

Dec. 31 isn't a final deadline. Congress could fashion a retroactive tax fix in 2011. But Mr. Obama is likely to push Democrats hard to avoid a lapse of the Bush breaks.

The second the clock ticks over to the New Year, the president would technically have presided over an across-the-board tax increase for most Americans, a problem as he prepares to run for re-election in 2012. Changing the tax code next year would also likely cause havoc at the Internal Revenue Service.

Republicans and many Democrats are more likely to be open to compromise once election pressure has abated. When Congress takes up taxes in the lame-duck session, "I think it's highly likely that taxes will not go up for people making up to $250,000," said Sen. Evan Bayh (D., Ind.), who has vocally opposed Democratic leaders' plans. "I think it's also likely that we'll get an extension for a year or two for higher earners."

Another inducement to compromise: The expiration would raise tax rates higher than the White House wants, not just on middle-class families, but also on dividends for higher earners and the estate tax. A key to an eventual compromise could be on the emotional issue of the estate tax, where a possible compromise would see a return to the 2009 rate of 45%, with an eventual reduction to 35%.

The House voted 237-187 Sept. 23 to pass a small business bill (H.R. 5297) that includes $12 billion in tax cuts for small businesses and a new $30 billion lending fund to aid credit availability for small firms.

The White House said President Obama will sign the bill into law Sept. 27.

The legislation includes a one-year extension of the 50 percent bonus depreciation provision created in the American Recovery and Reinvestment Act (Pub. L. No. 111-5), an increase in tax code Section 179 expensing limitations up to $500,000, and an increase in the phase-out threshold amount to $2 million for 2010 and 2011.

"Six Make It In America bills have already been signed into law. In addition, Democrats have voted for investments in job-creating infrastructure projects, lower taxes for 98 percent of Americans, expanded Small Business Administration lending, tax credits for small businesses that hire unemployed workers, and long-term tax credits to help small businesses afford employee health care--and we've done it in the face of a year and a half of near-unanimous Republican opposition, obstruction, and unwillingness to cooperate," House Majority Leader Steny Hoyer (D-Md.) said after the bill's passage. "In all, this bill's provisions are projected to save or create as many as 500,000 jobs."

The bill will also allow business owners to deduct the cost of health insurance for the purpose of computing 2010 self-employment taxes and permit general business credits of small businesses to be carried back for five years. Those credits would not be subject to the alternative minimum tax.

Investors in small businesses would also be allowed a 100 percent exclusion for capital gains from the sale of certain small business stock. In addition, the bill provides for an increase in the allowable deduction for startup business expenses.

Firms would also get relief from the oft-criticized tax code Section 280F requirement that they account for how much of their employees' company-issued cell phone use is for personal calls in order to deduct the full cost of the phones. The current law assumes that employees will use company cell phones for personal use at least some of the time and requires that companies keep detailed records on the phones so a portion of their cost can be counted as taxable income for their workers.

"As consumers and businesses across the country deal with the current challenging economic conditions, this bill will provide them with much needed relief. The president, his administration and Congress clearly understand that employer-provided devices are essential for employees because they offer convenience and improve productivity. It is an arcane rule to require all personal usage to be considered a taxable benefit," CTIA-The Wireless Association President Steve Largent said.

Offsets Through Retirement Accounts.

To offset the cost of the tax cuts in the bill, lawmakers agreed to allow individuals with 401(k), 403(b), and governmental 457(b) plans to roll their pretax account balances into Roth individual retirement accounts, an idea expected to raise more than $5.5 billion over 10 years.

The change would make the amount of the rollover taxable as income, except in the case of money that is a return of after-tax contributions. If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012, the committee said.

Another $2.5 billion in revenues would come from a new provision to require individuals who receive rental income from real property to file Form 1099 information returns to the Internal Revenue Service and to service providers if payments have totaled$600 or more during the year for rental property expenses.

Lawmakers also added a provision to prohibit companies from claiming the $1.01- per-gallon biofuel production credit on crude tall oil, a waste byproduct of the paper manufacturing process, as a way to raise $1.8 billion.

While Democrats celebrated passage of the bill, Republicans criticized the legislation's use of another round of new Form 1099 rules as increasing the paperwork burden on small businesses, and also the Small Business Lending Fund, which was equated with a miniature version of the Troubled Asset Relief Program.

"Small businesses are the engine of job creation in America, and for the past 20 months they've been punished by Washington Democrats' job-killing agenda. Unfortunately, this bill does nothing to help end the uncertainty that is crippling job creation and hurting small businesses. Instead it puts taxpayers on the hook for even more bailouts. Americans don't want more 'stimulus'spending, more bailouts, and more tax hikes," said House Minority Leader John Boehner (R-Ohio).

Major Provisions in Small Business Bill (H.R. 5297) as Cleared by House, Senate for President Obama Tax Incentives.

The tax incentives provisions include:

. a one-year extension of 50 percent bonus depreciation through 2010,

. an increase in tax code Section 179 expensing limitations up to $500,000 and an increase in the phase-out threshold amount to $2 million for 2010 and 2011,

. allowing business owners to deduct the cost of health insurance for the purpose of computing 2010 self-employment taxes,

. allowing general business credits of small businesses to be carried back for five years and not making those credits subject to the alternative minimum tax,

. a 100 percent exclusion for capital gains from the sale of certain small business stock,

Employer groups are urging three federal agencies to modify interim final regulations under a new health care law because the rules do not give health plan sponsors enough time to comply with requirements and will increase employers' costs without improving employees' welfare.

Comments were due Sept. 21 on the regulations (T.D. 9494) that apply to internal claims and appeals and external review processes under the Patient Protection and Affordable Care Act (Pub. L. No. 111-148). The interim final regulations apply to group health plans and group and individual health insurance issuers for plan years beginning on or after Sept. 23, 2010.

The interim final rules, released jointly by the Internal Revenue Service, the Labor Department's Employee Benefits Security Administration, and the Department of Health and Human Services, are designed to standardize and improve procedures for consumers to appeal medical coverage or claims denials by their health insurance companies, including the right to appeal to an external third party (140 DTR G-8, 7/23/10).

Many health plans and states already allow for internal and external reviews of medical coverage, but department officials in releasing the rules in July said the interim final rules and comment period required under PPACA would help strengthen and simplify the review process, giving consumers new power to fight claims and coverage denials by health insurers.

Increasing Administrative Costs.

In a comment letter, the ERISA Industry Committee offered detailed comments on internal claims and appeals procedures, external review processes, and the effective date of regulations, warning that employers do not have unlimited resources to spend on health care and the interim final regulations will increase employers' administrative costs without producing a corresponding increase in employees' welfare.

"As American companies struggle to compete in a global economy, they labor under the burden of a health care system that is among the most expensive in the world. This burden falls much more heavily on private companies in the United States than it does on their [foreign]competitors," ERIC President Mark Ugoretz said in the letter.

The letter said that PPACA imposes a number of expensive new mandates on employer health plans that already are struggling to cope with runaway medical costs. "Many of ERIC's members are approaching, and many have already reached, the tipping point: They cannot spend more money on health care, so that every additional dollar needed to satisfy a new administrative requirement is a dollar that must be recovered by reducing employees' health benefits," the letter said.

Little Time to Comply.

The National Business Group on Health in its comment letter said the safe harbor provisions in the regulations do not give employers enough time to make changes to their plans to meet the new independent review rules.

NBGH President Helen Darling wrote in the letter that the departments should withdraw the interim final rule and reissue it as a proposed rule for public comment.

The group said the claims review rule issued in 2000 has worked well, many plans voluntarily provide an extra review externally, and the new requirements for internal appeals and external review do not allow sufficient time for compliance because of uncertainty about the number of accredited independent review organizations (IROs)currently available.

No Time for Adjusting, Amending.

Claim Appeal Fiduciary Services Inc., Cleveland, an independent processor and fiduciary for final claims appeals, in its comment letter said that group health plans will not have time enough to comply with the interim final regulations.

"The rules do not give group health plans enough time to evaluate their alternatives, select an independent third party, and select an IRO that is accredited, pursuant to the rules. Thus, plan sponsors and fiduciaries are left with insufficient time to implement internal or external final claim appeal review procedures to comply with the rules," the letter said.

"Indeed, it is unclear whether the existing accredited IROs have sufficient time and capacity to handle the additional external appeal load. Additional time should be allowed," the letter added.

DALLAS (Dow Jones)--The Internal Revenue Service hasn't yet determined the number of audits of Build America Bond sales it may undertake, an IRS official said Thursday.

"We have a very limited number of audits currently open, and we are still going through the planning stages," Steve Chamberlin, manager of the agency's tax-exempt bond division, said in an interview.

BABs are taxable municipal bonds that provide issuers with a 35% federal interest cost subsidy, often making them a cheaper alternative than tax-exempt securities. They represent the fastest growing sector of the $2.8 trillion market for state and local government bonds with about $135 billion sold since their introduction in April 2009.

The IRS is interested in issuers' post-issuance due diligence procedures, including whether or not they track the trading of their bonds in the resale market. Earlier this year, it sent voluntary questionnaires to every BAB issuer, and Chamberlin estimated that the response rate so far has been 75% to 85%.

The IRS also is interested in finding out more on BABs pricing, and if it's always being done appropriately. Interest costs that issuers pay affects the amount of subsidy the federal government has to pay out.

Another concern is "flipping" of bonds, where a dealer or underwriter purchases the debt, creates a scarcity value by taking the bonds into its own inventory and then immediately sells them at marked up prices to investors.

Pricing is important for BABs, especially because the federal government provides direct subsidy payments on interest costs for the bonds, and the size of the subsidy is impacted by how the bonds price.

The IRS recently said it has audits open into less than 10 sales, and its officials have stressed the tax agency is looking for true outliers, such as price-fixing situations.

But earlier in the year, the agency caused some consternation among market participants when one official initially suggested it could open audits into up to half of all sales. The IRS has since backed away from that statement, suggesting it's unclear what the total audit footprint could be.

"We want to fully analyze all the information available to us" before determining that, Chamberlin said.

Even so, some issuers have shied away from using BABs entirely. In March, Florida suspended its BABs issuance, citing a different tax rule that allows the IRS to offset a subsidy payment for monies it deems owed.

The handful of situations where offsets have been known to occur thus far have mostly involved payroll tax disputes though, and Chamberlin said the vast majority of subsidies due to BABs issuers have been paid.

Right now, the IRS is working to quell the fears that some issuers may have, Chamberlin said. "We've worked hard to assure that we are taking a measured approach. We are trying to be sensitive to concerns in the market."

The IRS official spoke with Dow Jones at a Bond Dealers of America conference at the Four Seasons Las Colinas Hotel in Dallas.

Orlando Sentinel, September 23, 2010,

IRSOpen House Saturday in Maitland , By Linda Florea

The Internal Revenue Service will host an open house 9 a.m. to 2 p.m. Saturday at its Maitland office, 850 Trafalgar Court, to help taxpayers, especially veterans and people with disabilities, solve tax problems and respond to notices. The open house is part of a nationwide event.

Those with tax questions or those who have received an IRS notice can speak with an agency employee to get answers to their questions or an explanation of what is necessary to satisfy the notice. A taxpayer who cannot pay a balance due can find out whether an installment agreement is appropriate and, if so, fill out the paperwork on the spot.

Assistance with offers-in-compromise, an agreement between a taxpayer and the IRS that settles the taxpayer's debt for less than the full amount owed, will also be available. And a taxpayer struggling to complete a certain IRS form or schedule can work directly with an IRS staffer.

"Our Saturday open houses have helped many taxpayers get their IRS issues resolved," spokesman Mike Dobzinski said. "Just like we've reached out to small businesses and victims of the Gulf oil spill this year, we want to help veterans and people with disabilities put their federal tax problems behind them."

Now that most U.S. military forces have left Iraq, the American diplomats left behind face serious security problems the State Department is ill-prepared to tackle.

That's the grave message the Commission on Wartime Contracting in Iraq and Afghanistan presented to Congress on Thursday.

Much of the security once provided by the military will have to be done by private contractors, yet the department does not have the money to hire the number needed nor the capability to manage them.

"Even if State could obtain the funds for more than doubling its private-security force, it is not clear that it has the trained personnel to manage and oversee contract performance of a kind that has already shown the potential for creating tragic incidents and frayed relations with host countries," Michael Thibault, commission co-chairman, said in a statement to the House Government Oversight and Reform Committee.

A July 12 report by the commission said the State Department has about 2,700 private-security contractors in Iraq but will need up to 7,000. It goes on to cite a troubling situation beset by "weaknesses in contract management and oversight, not to mention funding and hiring challenges."

The problem is even more complicated because Iraq "appears unable to provide normal host-country security and services," Thibault said.

The Pentagon has worked with the State Department but could provide much more help even as the military withdraws from Iraq. The Defense Department has yet to respond to a six-month-old State Department request for assistance seeking, among other things, helicopters, trucks and mine-resistant vehicles.

The July report quotes an April 7 letter containing the request from Under Secretary of State Patrick Kennedy. The letter said resources of the department's Diplomatic Security Service are "inadequate to the extreme challenges in Iraq."

Citing the lack of response, committee Chairman Edolphus Towns (D-N.Y.) said the Pentagon's "apparent lack of cooperation is unacceptable." A Defense Department spokeswoman said the Pentagon is preparing a reply.

The letter, the report and the commission's testimony draw a disturbing picture of a State Department that is not equipped to deal with its biggest job ever.

"After the departure of U.S. Forces, we will continue to have a critical need for logistical and life support of a magnitude and scale of complexity that is unprecedented in the history of the Department of State," Kennedy said.

Without that assistance, the department would be forced to rely on less effective equipment and "as a result, the security of [State] personnel in Iraq will be degraded significantly, and we can expect increased casualties," Kennedy warned.

For example, Thibault told the committee about a "counter battery system" that allows the military to determine the location of rocket or mortar launches against U.S. positions. "As a result, enemy insurgents seldom fire more than one rocket, as they know they will be targeted," he said.

But the State Department does not have that capability.

"Enemy insurgents will be delighted when they learn and experience that they will not be immediately targeted and brought under fire by the military. Where our enemies worked very hard to launch a single rocket, there will be little reason not to launch entire batteries of rockets," Thibault said. "The safety of Americans, government and contractor employees will likely be jeopardized. This is simply unacceptable."

This has upset members of the committee, including the top Republican, Rep. Darrell Issa of California. He complained that "the government is inadequately prepared to ensure that our diplomatic personnel are properly supplied and protected, now that our combat troops have withdrawn from Iraq."

The report lists 14 security related jobs that are a good fit for the military but are not in a diplomat's job description, including recovering dead and wounded personnel, recovering downed aircraft and bomb disposal.

If the department does not have enough private contractors to do those jobs, who will? And if contractors do those jobs, will they cross the line and perform inherently government functions that are the province of government personnel?

"Even basic questions of what military equipment will be transferred to the State Department and who will apply rules for the use of force still have not been settled," Towns said.

All of this isn't the State Department's fault, Thibault said. The department, he said, has been dealt a bad hand that includes "unknown contract and program support from the Department of Defense; funding limitations likely to impact mission capability; and the need to contract for and perform functions that have never been done by their department."

The devastating consequences of the war against Iraq are not over yet.

I hope you find this information useful. If you would like additional information, you can subscribe to an IRS e-Subscription by going to the Subscription page on IRS.gov.

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Headliner Volume 301, August 31, 2010 - New Audit Video Series Helps Small Business Taxpayers Understand the Process

Notice 2010-62 provides interim guidance regarding the codification of the economic substance doctrine under section 7701(o) and the related amendments to the penalties under sections 6662, 6662A, 6664, and 6676 by section 1409 of the Health Care Education Reconciliation Act of 2010.

Notice 2010-59 provides guidance on new section 106(f) of the Internal Revenue Code, added by section 9003 of the Affordable Care Act. That section sets forth a new standard, effective Jan. 1, 2011, for reimbursement of expenses for over-the-counter drugs from all workplace health plans, including flexible spending arrangements (FSA), health reimbursement arrangements (HRA), Health Savings Accounts (HSA) and Archer Medical Savings Accounts (Archer MSA). As a result of new section 106(f), the cost of over-the-counter medicines cannot be reimbursed from any of these tax-free arrangements unless the medicine is prescribed. This standard applies to purchases made on Jan. 1, 2011, or later -- even if the funds were set aside in 2010.

Revenue Ruling 2010-23 is also being released that obsoletes Rev. Rul. 2003-102, prior guidance on reimbursing expenses for over-the-counter drugs from employer health plans.

The 2011 Tax Calendar is available for pre-order. If you order now, the English version of the 2011 Tax Calendar will be shipped by early November. The Tax Calendar for Small Businesses and Self-Employed (Pub 1518, Catalog Number 12350Z) is a 12-month wall calendar. Copies can be ordered online or from the IRS by calling (800) 829-3676.